Dynamic Dollar-Cost Averaging Fund - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- exemption to permit a mutual fund to introduce a new management fee without obtaining prior approval of unitholders.
Rules Cited:
National Instrument 81-102 Mutual Funds, s. 5.1(a.1).
December 23, 2005
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR, NORTHWEST
TERRITORIES, YUKON AND NUNAVUT
(THE JURISDICTIONS)
AND
IN THE MATTER OF
DYNAMIC DOLLAR-COST AVERAGING FUND
(THE FUND)
MRRS DECISION DOCUMENT
Background
The securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from Goodman & Company, Investment Counsel Ltd. (the Manager or Filer) for a decision (the Decision) under the securities legislation of the Jurisdictions (the Legislation) for an exemption from subsection 5.1(a.1) of National Instrument 81-102 Mutual Funds to permit the Fund to introduce the Management Fee (as defined below) without obtaining prior approval of unitholders (the Requested Relief).
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this Decision unless they are otherwise defined in this Decision.
Representations
This Decision is based on the following facts represented by the Filer:
1. The Fund is a mutual fund trust created under the laws of the Province of Ontario. The Fund currently distributes Series A units (Units) to the public pursuant to a simplified prospectus and annual information form dated January 28, 2005 (the 2005 Prospectus) and has filed its pro forma renewal simplified prospectus and annual information form (the Renewal Prospectus).
2. The Fund is designed to be a short-term investment for investors who wish to purchase another mutual fund managed by the Manager using dollar-cost averaging. The Fund provides this dollar-cost averaging feature to investors by automatically switching on a weekly basis 1/52 of the investor's original investment in the Fund to another mutual fund pre-selected by the investor from a list of eligible mutual funds managed by the Manager. In this manner, every investor's investment in the Fund is fully switched into another mutual fund by the end of the 52nd week following the date of the original investment in the Fund.
3. The Manager does not currently receive a management fee from the Fund. Commencing October 1, 2006, the Manager proposes to commence charging to the Fund an annual management fee equal to 1% of the net asset value of the Units as compensation for its management services provided to the Fund (the Management Fee).
4. All of the Units purchased by investors prior to the 2005 Prospectus will be fully switched out of the Fund before the Management Fee begins being charged.
5. The 2005 Prospectus discloses that, subject to regulatory or unitholder approval, the Fund will commence being charged the Management Fee on February 15, 2006. Implementation of this change has since been postponed to October 1, 2006 and the new implementation date has been communicated through the Manager's website as well as by electronic means to dealers and is reflected in the Renewal Prospectus.
6. Every Unitholder who holds Units when the Management Fee commences being charged will have purchased such Units pursuant to either the 2005 Prospectus or the final Renewal Prospectus, both of which disclose the proposed Management Fee.
7. The Manager believes that introducing the Management Fee will not prejudice unitholders because they will either be fully switched out of the Fund prior to the Management Fee being implemented or will have purchased their Units with notice of the Management Fee in the 2005 Prospectus or the final Renewal Prospectus.
8. The Manager can achieve the same result without unitholder approval by ceasing to distribute the Units and commencing to distribute a new series of units of the Fund that is charged the Management Fee. However, this would result in unnecessary administrative burden, potential confusion and loss of the Fund's past performance record.
9. The cost of convening a special meeting of unitholders of the Fund to approve the Management Fee outweighs the benefits of such a meeting since all unitholders of the Fund either will have their Units switched out of the Fund before the Management Fee commences being charged, or will have purchased their Units pursuant to a simplified prospectus that discloses the proposed Management Fee.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that the amount of the Management Fee is disclosed in the "Fund Details" table (Item 5, Part B, Form 81-101F1) in Part B of the final Renewal Prospectus but otherwise may be disclosed in the table required by Item 8.1, Part A, Form 81-101F1 in any subsequent prospectus.